In this article, Daniel Hendon, Andrew Surgey and Alice Dawson-Loynes consider how preservation of an agreed approach to financial monitoring and calculations for leveraged finance loans in the European mid-market is fundamental to maintain suitable protections for private credit lenders. Discrepancies in figures can raise red flags as to whether the financial reporting is simply inconsistent or whether the sponsor is attempting to hide a financial covenant breach, though options are available to lenders to clarify figures and request additional information.

1. External market pressures in recent years have created potential financial underperformance issues for some borrowers in the European mid-market.
2. The approach for the accounting treatment is typically agreed upfront and documented, yet complicated financial calculations can leave private credit lenders concerned as to whether the correct accounting treatment is being consistently applied by the borrower.
3. Compliance with financial covenants may be questioned in certain circumstances.
4. Loan documentation should provide various protections and rights for the lenders to request additional information where there appears to be discrepancies.
5. The lender may also be able to amend the loan agreement in exchange for a waiver.